CML wants borrower 'safety net' commitment from Govt

The Council of Mortgage Lenders (CML) has written to the Government to ask its views on a possible reform of the state safety net for borrowers.

The letter from CML director general Michael Coogan to the Chancellor of the Exchequer, also outlined a number of steps being taken by lenders to assist struggling borrowers.

The letter stresses the urgeny of reforming income support for mortgage interest (ISMI) if those borrowers most at risk are to avoid repossession.

Currently, mortgage borrowers are only entitled to state support after a lengthy period of unemployment, unlike tenants who can access rental support immediately.

Coogan writes: “The Department of Work and Pensions' proposals to reform ISMI [income support for mortgage interest] and to implement improvements to state support, remain urgent for those borrowers committed to staying in their homes who face a short-term loss of income."

In the letter Coogan also says over the past year the CML has “substantially increased” its focus on developing measures to assist its understanding of arrears trends and has worked to implement a more effective safety net for borrowers.

He did, however, maintain that the success of such a strategy relies on government involvement.

“It is vital that the industry and the Government work together to make the safety net for borrowers in financial difficulty as strong as possible,” Coogan says.

The letter also highlights the importance of differentiating arrears management processes according to the individual situation of each borrower.

According to the CML, factors to be taken into account include: the financial position and credit history of the borrower; the borrower’s level of equity in the property; the cause of arrears and whether or not it is likely to be resolved in the short term and whether insurance or other benefits might be claimed to help the borrower’s situation.

“FSA rules that require all lenders to have arrears management policies that are designed to avoid repossession except where realistic alternatives are not possible, are not delivered in a single standard approach, and will differ between lenders,” Coogan adds.

Measures being adopted to combat this problem include commitments from CML members to analyse their existing arrears management policies and implement any changes identified as a result of the industry guidance which the CML is preparing.

According to the letter, lenders have also committed to introducing an appropriately worded pre-action protocol for mortgage cases for use before court proceedings.

Coogan concludes the letter by saying: “We will continue to work closely with Ministers and look forward to a clear statement of the government's own position on the safety net for borrowers.